How Hard Is It to Get a Business Loan?

How hard it is to get a business loan depends on several factors. In the grand scheme of things, it depends on the overall economic situation at the time you apply. Right now, for instance, the US loan approval rate is 13.5%, down a tenth of a percent from the prior month of September. The reason the approval rate is so low, compared to last year's high of 27.3%, is because of the COVID-19 pandemic’s impact on small businesses. Other factors that affect your ability to receive a loan are your business’s credit rating, financials, how long you’ve been operating, and other bank requirements.

Challenges of Getting a Small Business Loan

Challenge 1: Poor or No Credit History

Startups and some small businesses run into the issue of having poor or no credit history. The challenge here is that lenders don’t like risk. If you have a history of not repaying your debts, this tells lenders you’ll likely not repay the money they lend your company. If you have no credit history, lending money to you is a risk because you have no proof you’ll repay the debt.


Mitigating risk is the solution to poor or no credit. How do you mitigate this risk? Obviously, you’ll need a legal business entity. You should start building business credit before applying for the loan or provide the lender with some security, so if you stop paying the loan, they own the collateral used to guarantee the loan. The last option is to apply for a business credit card and leverage it to build your company.

Additionally, you can check out our review of the best small business loans for bad credit.

Challenge 2: No Business Plan

Applying for a business loan requires submitting a lot of documentation, and included in this mix is a business plan. If you don’t have a plan, it tells lenders you don’t plan, and this makes you a risk.


When you start a business, you should have an idea of what you want to create. A plan helps you in the creation process. Business planning is not hard but does take some critical thinking skills and a little of your time. There are plenty of online templates and online business plan generators that make planning your company easier than ever. When planning your venture, you should also plan for a business loan.

Challenge 3: Not Enough Time in Business

Companies with a solid track record of consistent sales and good management are less risky than startups a year or two old. The longer you’re operating, the more you increase the chances of getting approved for a loan.


The solution to funding your company sooner rather than later is to find alternative ways to grow your venture. We recommend reaching out to friends and family for financial support and discovering ways to build business credit.

Challenge 4: Limited Collateral

If you own a new company, you probably don’t have much collateral, which can be a problem when applying for a loan. Lenders need to feel secure in knowing you’ll pay back the loan. Collateral is a protection for them should you not pay them back. This collateral has value, and once they own it, they can sell it and recoup their loss. How do you resolve the problem of having limited collateral to put down to secure your small business loan?


The key to collateral is understanding collateral value and what lenders prefer when it comes to collateral. Once you figure out what someone wants, it makes it easier to negotiate with them. The same applies to negotiating with lenders, so it’s a good idea to know the ins and outs of collateral before applying for a small business loan. There’s more to collateral than just tangible assets — consider intangible assets. For example, company stock can be used as collateral.

Challenge 5: Lack of Required Documentation

Often not getting approved for a loan can come down to not having the right documentation. It hurts to think that your application was disqualified because you failed to submit last year's tax return, a business plan, or a profit and loss statement.


A simple solution is to have the right business loan documentation. The best way to achieve this is by knowing what documentation is needed for approval and then organizing that information together in a simple loan application packet. When you’re ready to apply for a small business loan, check the bank’s requirements and send them the documents they require.

Alternatives to Small Business Loans

Perhaps we’ve hinted at this already, but there are plenty of alternatives to small business loans that can, in many cases, be a more suitable solution for funding your company. Don’t get discouraged if a loan seems out of reach for your small business at this time. Try some other options; you may find them a better solution.

Friends and Family Loans

Most startups get their initial investment from friends and family members. This is true and, in most cases, is a better option because interest is less, and repayment terms are more favorable. Make sure you treat a loan from a friend or family member the same way you would a traditional lender.

Here’s some advice:

  • Present them with a business plan.
  • Let them know how the money will be spent.
  • Give them access to your financials and be transparent with them.
  • Insist on a repayment contract, detailing terms and conditions, etc.
  • Pay back the loan on time, early if possible.


Most small businesses are started on a shoestring budget with personal savings by the person starting the company, a practice known as bootstrapping. As you bring in those initial sales, that money goes back into growing the venture, and with a little luck (i.e., good business acumen), the business eventually supports itself and later the owner.

The drawback to bootstrapping is it may take longer to build a company. But, if debt isn't your thing, this may be the best solution.

Here’s some advice:

  • Save as much money as possible.
  • Have a plan for continued funding.
  • Make sure you can support yourself financially.
  • Outline a bootstrapping plan in your business plan.

Small Business Grants

There is free financial help for small businesses known as grants. Grants are great because they don’t have to be repaid, and there is no interest either. Most would agree that free money is better than a loan.

How to get a small business grant:

  1. Find a small business grant
  2. Learn the requirements
  3. Determine eligibility
  4. Write a grant proposal
  5. Apply


Business Credit Cards

Business credit cards are another option if you can’t get approval for a loan. One strategy is to apply for a secured business credit card. A secured card is one where you put up a security deposit to guarantee that you’ll repay the credit card bill each month. With a good repayment history, you’ll get your deposit back, and your card will become an unsecured business credit card.

Here’s some advice:

  • Pay your bill off in full each month.
  • Don’t spend more than 30% of your credit limit.
  • Wait a year to request an unsecured credit card.
  • Wait a year to request a credit limit increase.

This is a great way to build business credit so that you qualify for a small business loan later.


Crowdfunding is when many people give a little to help a company grow and thrive. There are many great crowdfunding platforms where you can create an account and request help funding your business. Kickstarter is one great example.


If all else fails, find an investor that is willing to help you with the expectation of something in return. Investors lend money to your company at some cost. It could be they want a percentage of your venture or repayment at a higher interest rate than a bank would charge.

Here’s some advice when working with investors:

  • Look for investors who believe in win-win investing principles.
  • Know what you’re giving up and decide if it’s worth it.
  • Shop around to find the best investor for your venture.
  • Learn the art of negotiating before negotiating with an investor.


There is so much to consider when applying for a business loan. The whole process can seem overwhelming, but it is important to know your options and choose the best option for your small business. Remember, the decisions you make today can affect you well into the future. Making the best decisions today will ensure a bright future for your venture.

Follow this advice and you’ll find loan approval in your future, and you’ll have a small business loan that will help you build your company and establish good business credit.


What credit score is needed to get a business loan?

The better your business credit score, the better your chances of being approved for a small business loan. The credit score you’ll need is ultimately up to the loan underwriter and the lending institution. On the low end, we recommend you have a minimum of a 680 credit score.

What is the easiest business loan to get?

There’s no easy answer to this question. The easiest loan may not necessarily be the best loan for your venture. You first need to assess your company's needs and then look for lenders that meet your needs. Once you do this, find a lender with the fewest requirements, these are usually online lenders.

What are typical business loan terms?

Typical loan terms for small business loans are short term lending periods of one to three years. Lenders want their money back, along with interest, and look at you as an investment. With this in mind, position your company as a great investment opportunity for them, posing the least risk possible.

How long does it take to get a business loan?

Online lenders can get you approved as quickly as the day you apply. Traditional lenders will take much longer to approve your small business loan, and approval may not come until weeks or months later. Knowing this information, you should plan for a loan well in advance before you need it.

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